Re: Lots of equity!! What to do with it??!! - Posted by GL - ON
Posted by GL - ON on April 07, 2003 at 12:06:50:
$185,000 is nothing. You shouldn’t sell until the price is a multiple of your purchase price. Do you think it won’t? It will if you wait long enough. And if it’s a good building with positive cash flow why wouldn’t you keep it a long time?
Here is how you know it is time to sell: There is a boom on, that has been going on for several years, and new investors are paying ridiculous prices. I mean deep in negative cash flow territory.
Do you know what GRM means? If not do an archive search, it has been covered before. At the peak of the last boom in Toronto 1989, apartment houses were selling at a GRM of 16 and higher. I’m guessing you have a GRM around 4. So we are talking about a price of around $500,000 in a boom, not counting any appreciation due to rent increases.
The reason I say this is, that if you like apartment investing, selling one to buy two or three others is a poor way to do it. It means taking two steps forward and one step back. Keep what you have and buy more.
You can use your equity in different ways. One way is to give a seller a mortgage on your property as a down payment. This gets around the problem of banks not wanting you to finance out when you buy. Or use your equity to increase the 1st mortgage, or get a line of credit.
As long as you can buy good rentals with positive cash flow, go for it. You won’t lose. When the market goes nuts and newbies are offering ridiculous prices, that is the time to sell out and take your profit.
Now about getting your children involved, you could try getting them to associate your buildings with money. When they are small you could let them sweep the steps and the hall, and give them a dollar. Put them to work and pay them. As they get older you can let them clean, paint etc. and pay them the going rate.
Whenever they want some dough, they will ask you if you have any work for them (if you do it right).
Eventually they will be mature enough that you can let them in on the secret: the money you pay them is chump change, the real dough is in owning real estate.
They may be able to grasp this when they are in their teens (I was). On the other hand I know some people who still don’t get it when they are in their forties.